If successful investing is an exercise in buying and holding assets in high demand and low supply, real estate in 2026 presents a compelling picture.
The 2026 outlook from Hazelview Investments, the global real estate investment firm, notes a fundamentally attractive setup: a historically low level of new supply is coming to the market after a period of strong investment, which largely ceased post-pandemic as interest rates increased amid higher costs for labour and construction.
New global supply is expected to be at historical lows for the next two years, the forecast adds, at a time when occupancy is well above the long-term average.
If you roll forward the tape four years, there’ll be very few new condos because nobody’s putting shovels in the ground today.
Colin Lynch, TD Asset Management
What’s more, valuations are attractive for global real estate investment trusts (REITs) collectively with historical returns at 10-year lows. These periods of underperformance, relative to soaring equity markets, are typically followed by periods of above-average returns, the report posits.
For high-dollar investors, opportunity may indeed be knocking. Here, four money managers offer their views on where to (hypothetically) invest $1 million in real estate today.
The REIT idea for industry
One sector seeing improving supply-demand fundamentals is industrial, which experienced strong demand and growth during the pandemic driven by e-commerce’s need for warehousing space, says Kate MacDonald, real estate portfolio manager for global equity at BMO Global Asset Management. “Now that peak supply has passed,” vacancy rates are stabilizing across most markets, she adds.
Dream Industrial REIT is one investment vehicle offering diversified industrial real estate exposure. Investing in warehouses and other industrial properties across Canada, the U.S. and Europe, it trades at “a multi-multiple-point discount to peers” with a yield of about 5 per cent, adds MacDonald, who manages BMO Global Asset Management’s REIT allocations.
As well, Dream’s recent partnership with Canada Pension Plan Investments is “a solid indication of value” with good pricing, she adds.
The rents that tenants are paying on the REIT’s assets are collectively below market, she says, providing it with the ability to increase rents in the future, resulting in potentially improved income and profitability over the next two years, especially as older leases expire.
Bottoms up for condos
Family offices seeking direct investment in real estate might consider Canada’s beaten-up condominium market, especially in the nation’s largest urban centres, says Colin Lynch, managing director and head of private assets, including real estate, at TD Asset Management in Toronto. “Condos in major urban centres like Toronto have traded down materially,” he notes.
The market includes many financially distressed owners who purchased units in pre-construction at the peak of the market. In turn, family offices have the opportunity today “to buy assignment condos at material discounts” from these owners.
Lynch further notes that investors can find units with initial valuations of $1,200 per square foot now trading at $900. And well-capitalized buyers such as family offices have the added benefit of negotiating power; they can sometimes push prices as low as $700 per sq. ft., well below current replacement costs, he adds.
At the same time, new condominium development has largely come to a standstill due to oversupply because of slower rates of international migration and increased inter-provincial migration that has seen populations flow from larger centres such as Toronto to medium-sized cities including Calgary and Edmonton.
“If you roll forward the tape four years, there’ll be very few new condos because nobody’s putting shovels in the ground today,” Lynch adds. “And we know that, at some point, a more normalized immigration dynamic will re-emerge, and where do folks land in the greatest preponderance from other places in the world? Toronto.”
A rising sun for Japanese real estate
Private investment manager Sagard Wealth sees a new dawn for the long-struggling real estate sector in Japan. That is despite the potential for rising interest rates, which can negatively affect real estate investing, says Stephen Harvey, chief investment officer.
Japan’s real estate market is uniquely positioned to deal with that challenge, with capitalization rates—“your expected return on real estate”—higher than interest rates, he says. “You’re getting paid a positive return already” without even adding value to properties in many cases.
What’s more, Japan’s real estate has been marred by decades of deflation, so more normalized inflation is viewed as beneficial, especially if it is driven by rising asset prices, he adds.
Also creating opportunity are recent changes to corporate governance rules that force publicly traded companies with non-core real estate investments to sell them and reinvest in assets that boost productivity, Harvey says.
“This creates more supply because these non-core assets are hitting the market,” which is good for family offices and other buyers, he adds. The investment case is further improved with the yen trading at 35-year lows. “So you’re likely making money,” Harvey says, “on that alone to start.”
Greying growth
Portfolio manager Sam Sahn with Hazelview in New York City says the war in Iran may give real-estate investors pause, given higher inflation could lead to interest rate hikes.
Yet Sahn says the likelihood of interest rates rising acutely like they did in 2022 is low, and Hazelview does not forecast that real estate cash flows will decline because of the fundamental setup of low supply and high demand.
While this favourable imbalance applies across many sectors and geographies, in Canada, one real estate sector where this setup is most constructive is seniors’ residences. “It is experiencing a boom in demand from the 80-plus cohort that now needs more care.”
Supply in Canada is at generational lows, representing about one per cent of existing housing stock despite this demographic representing about five per cent of the population. And that share is expected to grow for the next decade, exacerbating the imbalance, Sahn explains.
Chartwell Retirement Residences REIT, one of the largest owners of seniors’ residences in Canada, offers a pure-play exposure to this growing trend.
“The company owns an outstanding portfolio and is really well positioned to drive earnings growth,” Sahn says, noting that previous negative headlines about COVID-19’s impact on seniors’ residences have led to many investors overlooking the sector.
Joel Schlesinger is a Winnipeg-based freelance writer who has written for Canadian Family Offices since 2021. Specializing in investment, wealth advice, real estate and personal finance, he is also a regular columnist for the Winnipeg Free Press, and his work regularly appears in The Globe and Mail, Calgary Herald and Edmonton Journal.
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